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Is the China-led upturn cycle peaking out?

We think the market is overly concerned about the commodity price correction, Chinese PPI reaching a peak, property sales declining in Tier 1 and Tier 2 cities in China, and lower liquidity as a result of more stringent regulations.

However, we believe the current China-led cycle will continue, for the following reasons:

The current recovery in the Chinese economy is widespread and has momentum as both private and public capex expansion are very strong;

Liquidity has and will continue to support private and public capex expansion as M1 growth is still much faster than M2 growth;

The Chinese property sector, which is the only pillar industry that continues to surprise to the upside, will continue to do so as property inventory is facing widespread lack of supply;

PPI, the very important price indicator for this round of Chinese economic recovery, will continue to be very positive, as it indicates negative real interest rates, which will lead to upward earnings revisions and further NPL reduction.